APTC Hacks, BHP and 1332 Waivers

The ACA has two non-Exchange means of significantly expanding and configuring coverage.  The Basic Health Plan (BHP) allocated 95% of the combined funding of the Advanced Premium Tax Credit (APTC) and Cost-Sharing Reduction (CSR) subsidies of a state that would have been paid to cover people earning between 138% and 200% of the Federal Poverty Level (FPL).  Those funds are then used to create a low cost network (usually paying provider Medicaid plus something rates) to offer high actuarial value coverage.  New York and Minnesota and currently the only states offering BHPs.

The other method a state can use to rejigger their coverage arrangements is through a 1332 State Innovation Waiver.  These waivers allow states to re-arrange minimal acceptable coverage, eligible populations, subsidies and most other ACA requirements as long as the end result covers at least as many at least as well for no more federal cost than the traditional Exchange based methodology.

Right now, most of the 1332’s (with the exception of a potential Colorado single payer 1332) that are being proposed are fairly technical back-end fixes.  For instance, Massachusetts wants to re-align merged risk pool provisions for the small group market.  That is valuable.  It is not a system transformation effort.

Both of these alternative pathways have strong budget constraints.  The BHP program must cost the federal government no more than 95% of the traditional effort.  The 1332 process must be budget neutral.

States that want to engage in large scale systemic experimentation with either the BHP or 1332 waiver processes need to be aware of what strategies carriers are offering in their market.  If a state’s markets are dominated by Silver Spam strategies, the budget flexibility to engage in large scale reform will be severely constrained.  Silver Gap strategies will give states significantly more budgetary resources to use for BHP and 1332 demonstration projects.

Let’s go below the fold to explore why.

The Silver Spam strategy aims to lower the value of the APTC by having a the lowest priced plan design cloned to produce the benchmark plan.    I am assuming CSR subsidy value grows roughly proportionate to the dollar value of premiums.

Ambetter in Chicago offered two narrow network HMO’s using the same network and plan type as their lowest Silvers.  For a 40 year old non-smoker, they charged $195 and $198 for those plans.  The difference was a slight change in benefit configuration.  The APTC is anchored on the $198.  Subsidies for a single 40 year old are cut off at an income slightly under $29,000.  After that income of 244% FPL, people are paying full price.

The Silver Spam strategy leads to most membership that is price sensitive to flood to the Silver Spam products.  More subtly the Silver Spam strategy limits the number of people who sign up.  The value proposition is good for heavily subsidized individuals who can buy a Silver with CSR.  It is good for people who are healthy as the narrow network won’t bother them.  It is not good for people who are not heavily subsidized with little to no CSR. It is not good for people who are mostly healthy but would like to buy Bronze with some subsidy support.

It covers comparatively fewer people at lower federal support levels.

Silver Gapping expands the membership pool and does so at a higher level of federal support.

Again, taking Ambetter in Chicago.  They priced at $195, $198 and half a dozen more plans near those points  Their nearest competitor priced at $249.  Let us assume an extreme Silver Gap strategy was adopted in Chicago.  Ambetter could offer a single plan at $195 with the benchmark Silver priced at $249.  What happens?

The first thing is the value of the APTC for a 40 year old non-smoker increases by $51.  This has a major effect.  A 40 year old making $17,800 would see a Bronze plan for no post-subsidy price.  The #1 Silver plan with CSR would cost the same individual $7 a month.  Previously that same #1 Silver would have a post-subsidy price of $58.  Dramatically lowering the out of pocket post-premium price by 88% will lead to increased enrollment by people who previously thought $58 per month was not a good deal but $7 was a good value.  The new second Silver (total premium of $249) does not see as dramatic of a price drop post-subsidy (45% drop in post-subsidy price for this income situation) but the price drop is a significant portion of the individual’s income.  And since the non-Ambetter new 2nd Silver has a broader network it will be an attractive offering to some people who were previously buying the narrow network Ambetter product.

This is an extreme scenario but it leads to very low cost Bronze plans and low, post-subsidy cost Silvers.  The subsidies shut off for a single 40 year old in the mid-300s FPL.  More people will buy into the market as their costs are lower while the pool is healthier as the marginal buyer is comparatively healthy.

Now why would a state care about Silver Gapping if it is to file a BHP or a 1332.

More people covered at a higher APTC and CSR subsidy means a larger pool of federal money that can be brought into the state to cover current populations.  If I was running a state exchange for a state that was intending to use the full array of PPACA discretionary coverage programs, I would change my exchange to a managed competition exchange with only a single Medicaid like provider in each region. That would create a low priced Silver when combined with commercially based insurers jockeying for the #2 Silver position.    This strategy would give my state a much higher baseline level of funding for either the BHP or the 1332 than any strategy that can be based on a clearinghouse Exchange.

California effectively has done this.  It providers for cheap options, high levels of enrollment and significant federal fiscal inflows.

4 replies
  1. 1
    Xantar says:

    Reading more about this from your posts and other areas, I’ve been wondering: why is so much tied to the second least expensive Silver Plan? Why not the least expensive Silver Plan, period?

  2. 2

    @Xantar: That was the decision by Congress as to how the subsidy would be calculated.

    The basic logic (I think) is that Congress wanted to make sure that everyone had “affordable” set of choices. Silver was deemed to be an acceptable baseline level of coverage (I think it is too low in coverage value but the Senate wanted a low CBO score so we got too low of coverage) so the subsidies were tied to allowing people to buy “affordable” coverage of at least two Silver plans. So the entire affordable choice universe would be at least two Silvers and some number of Bronze plans

    Going to the least expensive Silver plan would see subsidies cut as the benchmark would either fall a little (Silver Spam) or a lot (Silver Gap) but it would lead to fewer people signing up and of the people signing up, more of them going to low value coverage.

  3. 3
    Xantar says:

    @Richard Mayhew:

    Is there a provision that exchanges must include plans at all metal levels? Because if so, that would imply that one partial fix would be to calculate subsidies based on the least expensive Gold plan. You would still get multiple choices (Bronze and Silver), and you wouldn’t have gap hacking. Am I wrong?

  4. 4

    @Xantar: Nope. Carriers that offer on-Exchange plans must offer two metal levels. Right now there are very few on-Exchange Platinum plans and the most common combination is Silver/Bronze.

    Any changes on subsidy calculation has to go through Congress with a change in black letter law. It is not an administrative fix unlike “Significant Difference” regulation.

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